RIA marketing pros would do well to learn about the SEC’s new Investment Adviser Marketing rule. This post focuses on the new rule’s relevance to original content, media interviews and social media. Testimonials, endorsements and third-party ratings—all key focus areas of the new rule—are topics for another time.
The new Marketing rule applies to RIAs, not Registered Investment Companies, for which rules on advertisements are handled elsewhere. And it applies to each and every RIA, including small ones. The SEC’s commentary on the new rule, as recently posted in the Federal Register, is helpful in clarifying what constitutes advertising.
The new Marketing rule will become effective in early May. An 18-month transition period then applies to aid RIAs in establishing compliance.
Among the SEC’s stated reasons for the new rule is the replacement of an “outdated and patchwork regime on which advisers have relied for decades.” The SEC describes the new rule as replacing “broadly drawn limitations with principles-based provisions designed to accommodate the continual evolution and interplay of technology and advice.”
As part of the new rules, RIAs will need to create a new section in their ADVs that addresses marketing issues. (Their lawyers will make sure it goes in “Section L.”) The SEC has said it will consider a firm’s answers when preparing for the firm’s examinations.
Also, under new books and records rules, RIAs will be required to keep copies of advertisements. That’s one reason it’s especially important to be clear on just what constitutes an advertisement.
Two-prong definition of “advertisement”
The new “combined” Marketing rule carries the same section number, 206(4)1, as the previous Advertising rule, which it revises. The former Solicitation rule, which had been section 206(4)3, has been eliminated. Now, an “advertisement” is defined with two distinct prongs, one related closely to what was previously covered under the separate Advertising and Solicitation rules, respectively.
Here are the two prongs, as summarized by the SEC in its news release:
First, the definition includes any direct or indirect communication an investment adviser makes that: (i) offers the investment adviser’s investment advisory services with regard to securities to prospective clients or private fund investors, or (ii) offers new investment advisory services with regard to securities to current clients or private fund investors. The first prong of the definition excludes most one-on-one communications and contains certain other exclusions.
Second, the definition generally includes any endorsement or testimonial for which an adviser provides cash and non-cash compensation directly or indirectly (e.g., directed brokerage, awards or other prizes, and reduced advisory fees).
So, as outlined in the first prong, RIAs need to be highly conscious of when they are “offering” their services with respect to securities advice. This applies to wealth management firms–not just managers of private investment funds.
The SEC offers this example to help illustrate the concept of “offering” services:
…a communication that simply notes that an event is “brought to you by XYZ Advisers” would not qualify as an advertisement, as it is not offering any advisory services with regard to securities.
Similarly, there’s discussion about how offering non-securities-related services isn’t governed by the new Marketing rule. For example, advertisement for financial planning services with no mention of investment advisory services might not fall under the Marketing rule.
Market commentary & other educational content
What about market commentary that includes reference to the firm’s advisory services—is that an advertisement?
According to the SEC, “Generally, generic brand content, educational material, and market commentary would not meet the revised definition of an advertisement.”
But to not be an advertisement, this type of material must not veer into offering services: “…[W]e would view an article or white paper that provides general market commentary and concludes with a description of how the adviser’s securities-related services can help prospective investors invest in the market as offering the adviser’s services. Accordingly, that portion of the white paper would be an advertisement.”
With respect to media interviews, the SEC says:
[M]aterials that provide an adviser’s general market commentary (including during press interviews) are unlikely to offer advisory services with regard to securities.
Therefore, a media interview is not likely to be an advertisement, unless it veers into discussions about the firm’s securities-related services as opposed to expert comments on, say, market conditions or tax policy.
Webcasts and in-person events
There’s a carve-out under the Marketing rule for extemporaneous, live oral communications. (This does not apply to extemporaneous written communications, such as instant messages.)
But if the context is a presentation for which the presenter brings prepared remarks, slides or other materials—and if that presentation includes content that “offers” securities-related services—then the presentation is an advertisement under the new Marketing rule.
For many firms, and certainly for wealth managers seeking to engage with clients and prospects, this is the big one.
According to the social media section of the new rules, content posted by third parties—such as user comments on your website or on your page on a social media platform—is generally not considered advertising, provided you don’t manipulate it by, say, deleting unfavorable comments or moving them to the bottom of the thread, or endorsing comments in response to them.
Somebody says your advisors are always the smartest people in the room? Terrific. Just don’t move that comment to the top of the queue or reply with “We couldn’t agree more!” (unless you are prepared to document the changes as advertisements).
We’ll follow up with a subsequent post outlining some newly expanded social-media possibilities for RIAs—subject, needless to say, to their compliance team’s evaluations.
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.